Given all the whining that we are hearing about the Treasury not getting enough for their TARP money, I have a modest proposal.
Some creative new credit derivatives based on the Treasury positions purchased using bailout money. For example, Maiden Lane III.
Everyone has some exposure to the US Treasury and FRBNY, and should be able to hedge via credit defaults and the Maiden Lane SIV's would be good underlying. The press is uniformly negative about their prospects, which should provide nice premiums to sellers of the swaps.
Even though it is true that you can buy swaps on US Sovereign debt, the additional utility of being able to hedge more specific bailout programs could come in handy for their various counter parties. Like the next round of financial entities that may need a helping hand.
I would personally go long on the Maiden Lane III swaps.
And then there is the secondary benefit of assisting the Treasury in their marks. We are all in favor of price discovery and credit derivatives are highly effective, no?
OK.... Maybe I would settle for a proposition bet on Intrade.